1997 North American Industry Classification System ­ Completion Activities for
2002

AGENCY: Office of Management and Budget, Executive Office of the President.

ACTION: Notice of Intention to Complete Portions of the North American Industry
Classification System (NAICS) for 2002.

SUMMARY: Under Title 44 U. S. C. 3504(e), the Office of Management and Budget
(OMB), through the Economic Classification Policy Committee (ECPC), is seeking
public comment (please see Part V of the Supplementary Information section below) on a
proposal to complete portions of the North American Industry Classification System
(NAICS) for 2002. NAICS was jointly developed by Canada, Mexico, and the United
States. The proposed completion activities will focus on the Construction and Wholesale
Trade sectors of NAICS. Currently, these sectors are comparable among all three
countries only at the highest levels of aggregation. The ECPC also will consider
narrowly defined Retail Trade issues related to the national industries for department
stores and nonstore retailers as well as specific problems that may be identified in the
implementation of NAICS 1997. It is not the intent of the ECPC to open for
consideration all areas of NAICS that currently lack three-country comparability nor to
revise sectors other than those specifically listed above. Work is under way to determine
if 5-digit agreement can be reached among Canada, Mexico, and the United States in
Construction and Wholesale Trade.

DATES: To ensure consideration, all proposals for sector hierarchies and new industries
must be made in writing and should be submitted as soon as possible, but should be
received no later than April 26, 1999. In addition, all comments on the usefulness and
advisability of completion of the Construction and Wholesale Trade sectors,
modifications to national industries for department stores and nonstore retailers, changes
to alleviate implementation problems, and timing of completion activities must be
submitted in writing and be received no later than April 26, 1999.

All proposals for the hierarchical structure of the Construction sector and
Wholesale Trade sector as well as for new industries in these sectors, or for changes to
the national industries for department stores and nonstore retailers based on the
production-oriented conceptual framework of NAICS, should be addressed to: John
Murphy, Co-chair, Administrative Subcommittee of the ECPC, Bureau of Labor
Statistics, 2 Massachusetts Avenue N.E., Room 4840, Washington, DC 20212, E-mail
address: Murphy_John@bls.gov, Telephone number: (202) 606-6475, FAX number
(202) 606-6645.

ELECTRONIC AVAILABILITY: This document is available on the Internet from the
Census Bureau Internet site via WWW browser. To obtain this document, connect to
"http://www.census.gov" then select "Subjects A to Z," then select "N," then select
"NAICS (North American Industry Classification System)." This WWW page contains
previous NAICS United States Federal Register notices, ECPC Issues Papers, ECPC
Reports, the current structure of NAICS United States, and related documents.

PUBLIC REVIEW PROCEDURE: All comments and proposals received in response
to this notice will be available for public inspection at the Bureau of the Census, U.S.
Department of Commerce, Suitland Federal Center, Suitland, Maryland. Please
telephone the Census Bureau at (301) 457-2672 to make an appointment to enter the
Federal Center. All proposals recommended by the ECPC will be published in the
Federal Register for review and comment prior to final action by OMB. Those making
proposals will be notified directly of action taken by the ECPC; others will be advised
through the Federal Register.

The Supplementary Information section of this notice is divided into five parts:
Part I summarizes the background for NAICS 1997; Part II contains areas of less than full
comparability at the individual detailed industry level of NAICS; Part III details the
process that the ECPC will use to develop its recommended actions for the sectors
targeted for completion; Part IV outlines a work plan that will be used for the proposed
completion of the NAICS sectors for Construction and Wholesale Trade, and the national
industries for department stores and nonstore retailers; and Part V highlights areas in
which the ECPC is soliciting public comment..

Part I: Background of NAICS 1997

NAICS is a system for classifying establishments by type of economic activity.
Its purposes are: (1) to facilitate the collection, tabulation, presentation, and analysis of
data relating to establishments, and (2) to promote uniformity and comparability in the
presentation and analysis of statistical data describing the economy. NAICS is used by
Federal statistical agencies that collect or publish data by industry. It is also widely used
by State agencies, trade associations, private businesses, and other organizations.

Mexico's Instituto Nacional de Estadística, Geografía e Informática (INEGI),
Statistics Canada, and the United States Office of Management and Budget (OMB),
through its Economic Classification Policy Committee (ECPC), collaborated on NAICS
to make the industry statistics produced by the three countries comparable. NAICS is the
first industry classification system developed in accordance with a single principle of
aggregation, the principle that producing units that use similar production processes
should be grouped together in the classification. NAICS also reflects in a much more
explicit way the enormous changes in technology and in the growth and diversification of
services that have marked recent decades. Industry statistics presented using NAICS also
are comparable with statistics compiled according to the latest revision of the United
Nations' International Standard Industrial Classification (ISIC, Revision 3) for some sixty
high-level groupings.

For the three countries, NAICS provides a consistent framework for the
collection, tabulation, presentation, and analysis of industry statistics used by government
policy analysts, by academics and researchers, by the business community, and by the
public. However, because of different national economic and institutional structures as
well as limited resources and time for constructing NAICS, its structure was not made
entirely comparable at the individual industry level across all three countries. For some
sectors and subsectors, the statistical agencies of the three countries agreed to harmonize
NAICS based on sectoral boundaries rather than on a detailed industry structure. The
portions of NAICS that are not comparable at the detailed industry level are delineated in
Part II of this section.

The four principles of NAICS are:

NAICS is erected on a production-oriented conceptual framework. This means
that producing units that use the same or similar production processes are grouped
together in NAICS.

NAICS gives special attention to developing production-oriented classifications
for (a) new and emerging industries, (b) service industries in general, and (c)
industries engaged in the production of advanced technologies.

Time series continuity is maintained to the extent possible. Adjustments will be
required for sectors where Canada, Mexico, and the United States have
incompatible industry classification definitions in order to produce a common
industry system for all three North American countries.

The system strives for compatibility with the two-digit level of the International
Standard Industrial Classification of All Economic Activities (ISIC Rev. 3) of the
United Nations.

The ECPC is committed to maintaining the principles of NAICS as it develops
further refinements. The current round of completion activities is limited in scope based
on the NAICS' principle regarding time series continuity. The ECPC realizes that this
completion activity may occur before all users have initially implemented NAICS. The
narrow focus of the completion activities, and the importance of Construction and
Wholesale Trade to the economies of all three countries, will outweigh the time series
breaks and resulting noncomparability of time series. Users are encouraged to implement
the 2002 revision of NAICS once it becomes official.

NAICS uses a hierarchical structure to classify establishments from the broadest
level to the most detailed level using the following format:

Sector.................

2-digit............

Sectors represent the highest level of aggregation.
There are 20 sectors in NAICS representing broad
levels of aggregation.

Subsector.............

3-digit............

Subsectors represent the next, more detailed level of
aggregation in NAICS. There are 96 subsectors in NAICS.

Industry Group.....

4-digit............

Industry groups are more detailed than subsectors.
There are 311 industry groups in NAICS.

NAICS Industry....

5-digit............

NAICS industries are the level that, in most cases,
represents the lowest level of three country
comparability. There are 721 5-digit industries in NAICS.

National Industry....

6-digit............

National industries are the most detailed level of
NAICS. These industries represent the national
level detail necessary for economic statistics in an
industry classification. There are 1170 U.S.
industries in NAICS United States.

Sectoral hierarchies and specific industry proposals will be considered within the
structure presented above.

Part II: NAICS Areas Without Full Comparability at the Detailed Industry Level

The NAICS sectors that currently are not comparable at the detailed industry level
are: utilities; construction; wholesale trade; retail trade; finance and insurance; and public
administration. The subsectors that are not comparable at the detailed industry level are:
Real Estate; Waste Management and Remediation Services; as well as other services
including Personal and Laundry Services, and Religious, Grantmaking, Civic,
Professional and Similar Organizations. Separate agreements providing for detailed
industry comparability between Canada and the United States were reached for the
Utilities, Retail Trade, and Finance and Insurance Sectors. To distinguish the three
countries' versions of NAICS, they are called NAICS Canada, NAICS Mexico (SCIAN
Mexico, in Spanish), and NAICS United States.

The ECPC recognizes the need for complete comparability in the NAICS
structures being used in the three countries. The ECPC also recognizes the time sensitive
nature of any revisions for 2002. For this reason, the ECPC will limit consideration of
work for completion to those areas of NAICS where there currently is comparability at
the two-digit (sector) level only. The Public Administration sector is not a priority for the
ECPC at this time. Although there is only two-digit comparability for Public
Administration, the governmental structures in each of the three countries are very
different, and there is no great need for comparable statistics within the Public
Administration sector at the detailed industry level in all three countries. There is
agreement between NAICS Canada and NAICS United States in the Retail Trade sector
at the five-digit level. Further work in this area also is not a priority for the ECPC. The
Finance and Insurance sector is currently comparable at the 3-, 4-, or 5-digit level with
Canada and Mexico. This sector is the subject of various legislative efforts in the United
States, and significant change in the structure of the industry may occur in the next five
years. For this reason, the United States would recommend postponing any further work
in Finance and Insurance until 2007 or later.

Revisions to Construction and Wholesale Trade will create significant disruptions
for data users but are considered worthwhile if lower level comparability can be achieved
with our partners in Canada and Mexico. The ECPC will strive to minimize any
disruptions by revising only those sectors of critical importance in all three countries
where there is currently two-digit comparability.

Part III: U.S. Procedures and Solicitation of Proposals for Hierarchies and
Detailed Industries

1. Proposals for sectoral hierarchies in Construction and Wholesale Trade should
be consistent with the production-oriented conceptual framework incorporated in the
principles of NAICS. When formulating proposals, please note the hierarchies should
contain only those activities currently included by all three countries in the sector that is
addressed by a proposal. The scope of existing sectors and industries in NAICS is
detailed in the NAICS United States Manual. Copies of this manual can be purchased
from the National Technical Information Service (NTIS) at (800) 553-6847 or
http://www.ntis.gov. Proposals must be in writing and should include the following
information:

(a) Subsector(s) (3-digit level), and industry group(s) (4-digit level), detail for the
entire sector. These breakouts should be based on a production-oriented breakout to be
used at the higher levels of the sectoral hierarchy. A narrative description of the
production-oriented justification that forms the basis for a sectoral hierarchy should be
included. These 3-digit and 4-digit breakouts will form the basis used to create lower
level industries. For example, a sectoral proposal for Construction might include the
following detail:

Sector 23

Construction

Subsector 231...........

Wood Construction.

Industry Group 2311

Wood Residential Buildings.

Industry Group 2312

Wood Nonresidential Construction.

Subsector 232..........

Masonary Construction.

Industry Group 2321

Masonry Residential Buildings.

Industry Group 2322

Masonary Nonresidential Construction.

Subsector 233...........

Steel and Concrete Construction.

Industry Group 2331

Steel and Concrete Buildings.

Industry Group 2332

Other Steel and Concrete Construction.

In this hypothetical proposal, the building material and related processes are the
production-oriented justification for higher level breakouts within the Construction
sector. The sectoral hierarchy proposals may contain information at the NAICS industry
(5-digit level) as well as the national industry level (6-digit), if desired.

(b) Specific indication of the relationship of the proposed sectoral hierarchy(ies) to
the 1997 NAICS United States sector, subsector, industry group, NAICS industry, and
national level industry detail.

2. Proposals for new or revised 6-digit industries in the Construction and
Wholesale Trade sectors and the detailed national level industries for department stores
and nonstore retailers should be consistent with the production-oriented conceptual
framework incorporated into the principles of NAICS. When formulating proposals,
please note that an industry classification system groups the economic activities of
establishments or producing units, which means that products and activities of the same
producing unit cannot be separated in the industry classification system. Proposals must
be in writing and should include the following information:

(a) Specific detail about the economic activities to be covered by the proposed
industry, especially its production processes, specialized labor skills, and any unique
materials used. This detail should demonstrate that the proposal groups establishments
that have similar production processes in accordance with the NAICS production-oriented
industry concept (see ECPC Issues Paper No. 1, ECPC Reports Nos. 1 and 2).

(b) Specific indication of the relationship of the proposed industry to existing
NAICS United States 6-digit industries.

(c) Documentation of the size and importance of the proposed industry in the
United States.

(d) Information about the proposed industry in Canada and Mexico would be
helpful, if available.

Evaluation Criteria

Proposals submitted to the ECPC recommending a sectoral hierarchy or
requesting the creation of, or a revision to, a 6-digit industry will be evaluated using
production-oriented criteria. The ECPC and its subcommittees will evaluate proposals
for sectoral hierarchies before evaluating specific industry proposals. Please note that a
detailed industry proposal that meets the production-oriented conceptual framework of
NAICS may not be accepted if it is in conflict with an accepted sectoral hierarchy
proposal. ECPC Issues Paper No. 4, "Criteria for Determining Industries," describes
some measures that may be used, e.g., the specialization ratio and the heterogeneity
measure (see also ECPC Report No. 2, "The Heterogeneity Index: A Quantitative Tool to
Support Industry Classification"). Other measures of the similarity among establishments
will be considered and developed where necessary. For example, a coefficient of
variation measure may be applied where applicable. However, all these statistical
measures will supplement, not supplant, industry expertise and expert judgments about
industry production processes and similarities.

Proposed industries must also include a sufficient number of companies so that
Federal agencies can publish industry data without disclosing information about the
operations of individual firms. The ability of government agencies to classify, collect,
and publish data on the proposed basis will also be taken into account (see ECPC Issues
Paper No. 3). Proposed changes must be such that they can be applied by agencies within
their normal processing operations.

Proposals will be exchanged with Statistics Canada and INEGI, and reviewed
jointly in the completion of NAICS. It would be helpful, although not required, if written
proposals for new industries in NAICS present any available information on whether the
proposed industry exists in Canada or Mexico, and whether the proposal can be
implemented in those countries.

Part IV: Work Plan

Within the framework of Parts II and III above, the ECPC intends to begin the
completion of targeted sectors. This notice requests specific proposals for NAICS.
Public comments and input from government agencies that collect, compile, and use data
that are categorized by economic classifications will contribute to the completion of
targeted sectors in NAICS. The ECPC will charter a subject matter subcommittee to
address wholesale trade proposals and a second subcommittee to address construction
proposals. The Administrative Subcommittee of the ECPC will address proposals for
national industries related to department stores and nonstore retailers, as well as
implementation problems that may arise. The Administrative Subcommittee will
coordinate and review the efforts of the subject matter subcommittees and submit detailed
recommendations to the ECPC. The completion activities will take a top down approach
to the targeted sectors. First, a subsector and industry group structure will be developed
and agreed upon by the ECPC, INEGI, and Statistics Canada. Creation of NAICS and
national level industries will be based on the sectoral structures developed. The specific
milestones for additional activities of the ECPC are as follows:

The ECPC is seeking comments on: (1) the usefulness and advisability of
completing the Construction and Wholesale Trade sectors in NAICS, modifying the
national industries for department stores and nonstore retailers, and addressing specific
problems that may be identified in the implementation of NAICS 1997; and (2) the
timing of the proposed completion activities. Using the procedures discussed in Part III
above, the ECPC is also seeking proposals for: (1) the hierarchical structures of the
Construction sector and the Wholesale Trade sector, (2) new industries for the
Construction and Wholesale Trade sectors, and (3) modifications to the national
industries for department stores and nonstore retailers based on the production-oriented
conceptual framework used in NAICS.